Highlights
Core inflation did noticeably rise but not more than expected, at 0.3 percent in January but not enough to lift the year-on-year rate which holds at an as-expected 1.5 percent. Total prices, reflecting a rise in gas, rose 0.4 percent with this year-on-year rate also unchanged, at 1.7 percent. These results fit in with the Federal Reserve's expectations for a gradual upward trend for prices but they don't accelerate the outlook.

The income side of this report does show the effect of tax changes, as personal taxes fell 3.3 percent in the month to help underpin total income which rose a solid 0.4 percent for a second straight month. The wages & salaries component of income rose 0.5 percent for a second time in three months. Disposable personal income, after holding at 0.3 and 0.4 percent gains in prior months, rose 0.9 percent in January for the largest gain in a year.

Spending data are soft, up only 0.2 percent overall and marking a weak first-quarter start for the consumer. Spending on durable goods fell 1.5 percent on a downturn in vehicle sales offset by a gas-related 1.0 percent rise in non-durable spending and a 0.3 percent increase in service spending.

Reflecting the drop in taxes, the savings rate popped back higher in January, up 7 tenths to 3.2 percent. The gain in income is a positive not only for the savings outlook but the spending outlook as well. This report, despite the monthly weakness in spending, points to economic health, specifically rising income and gradually rising prices.

Consensus Outlook
Income has been steady and firm but spending, based on January results for retail sales, may prove soft. Personal income is seen is rising 0.3 percent in January while consumer spending is expected to come in at a gain of 0.2 percent. Price data have been subdued though January's pressure in the consumer price report does point to upside risk for PCE prices. The PCE price index is expected to rise 0.4 percent in January for a year-on-year rate of 1.7 percent with the core PCE price index, which excludes both food and energy, seen up 0.3 percent for a yearly 1.5 percent.

Definition
Personal income represents the income that households receive from all sources including wages and salaries, fringe benefits such as employer contributions to private pension plans, proprietors' income, income from rent, dividends and interest and transfer payments such as Social Security and unemployment compensation. Personal contributions for social insurance are subtracted from personal income.

Personal consumption expenditures are the major portion of personal outlays, which also include personal interest payments and transfer payments. Personal consumption expenditures are divided into durable goods, nondurable goods and services. These figures are the monthly analogues to the quarterly consumption expenditures in the GDP report, available in nominal and real (inflation-adjusted) dollars. Economic performance is more appropriately measured after the effects of inflation are removed.

Each month, the Bureau of Economic Analysis also compiles the personal consumption expenditure price index, also known as the PCE price index. This inflation index measures a basket of goods and services that is updated annually in contrast to the CPI, which measures a fixed basket.

Changes in taxes or social security cost of living adjustments can cause some sharp variations in monthly disposable income growth. However, on the whole, monthly changes in disposable income fluctuate less than monthly changes in personal consumption expenditures.Data Source: Haver Analytics

Monthly changes in personal
consumption expenditures are
usually skewed by large changes
in spending on durable goods.
Spending on nondurable goods
and
services tend to be less
volatile
from one month to the next.Data Source: Haver Analytics